Virgin Australia’s Hong Kong struggle made tougher with partner woes

The near-collapse of Virgin Australia’s Hong Kong code-share partner has heightened the challenge for boss Paul Scurrah in making the loss-making destination profitable.

Months-long anti-government protests have ravaged airlines operating in the Asian financial hub, with dominant local carrier Cathay Pacific’s passenger numbers down 46 per cent in November compared to a year earlier.

Virgin Australia believes Sydney to Hong Kong flights can become profitable.
Virgin Australia believes Sydney to Hong Kong flights can become profitable. Credit:AAP

Virgin will end its Hong Kong to Melbourne service in March but will continue to fly Sydney to Hong Kong, which Virgin boss Paul Scurrah believes can become profitable.

Industry experts say that has become more difficult because of strife at its code-share partner Hong Kong Airlines, which narrowly avoided collapse last month. The airline is facing an uncertain future and is looking to cut jobs and routes.


Hong Kong Airlines feeds passengers from mainland China onto Virgin Australia’s flights, as part of a strategy the Australian airline hatched three-years ago to tap into opportunities in what was then Australia’s fastest-growing inbound travel market.

Hong Kong Airlines is owned by the cash-strapped Chinese conglomerate HNA Group, which also owns a 20 per cent stake in Virgin Australia.

Paul Yong, lead aviation analyst at Singapore’s BDS Bank, said the recent impoundment of seven Hong Kong Airlines aircraft over unpaid fees appeared to be “a prelude to them going out of business”.

“Your planes are getting impounded, you cut staff, you fly less and I think that’s just going to lead to a downward spiral,” Mr Yong said. “Eventually I think there’s a strong possibility that the airline could go belly up.”

Cathay Pacific's passenger numbers were down 46 per cent in November.
Cathay Pacific’s passenger numbers were down 46 per cent in November. Credit:Cathay Pacific

Mr Young said customers were second-guessing whether to book flights with Hong Kong Airlines for fear of being stranded if it did collapse, which led to lower code-share passengers for Virgin.

Airline Intelligence and Research chief executive Tony Webber estimated about 15 per cent of Virgin’s Hong Kong traffic would come from code-share passengers, based on industry trends. He said its partner’s troubles created “big issues” for Virgin’s remaining Hong Kong service.

“Demand on Sydney-Hong Kong direct will be absolutely savaged at the moment – so that by itself is going to devastate that route,” he said. “Putting on top of that the Hong Kong Airlines issues, they would almost be terminating that service.”

A Virgin spokeswoman said its partnership with Hong Kong Airlines “continues to operate as normal and we can continue to work closely with Hong Kong Airlines on providing a great travel experience for guests”.

Virgin Australia entered a code-share agreement with Virgin Atlantic last year which will mean passengers can fly from Australia to London on a single ticket via Hong Kong.

Ending the Melbourne-Hong Kong has enabled Virgin to launch a new service to Tokyo in March in partnership with All Nippon Airways.

Mr Yong said HNA would probably want to sell Hong Kong Airlines, but that it was unlikely anyone would want to buy it given the challenges the local industry is facing. HNA has also been looking to offload its stake in Virgin.

Hong Kong Airlines narrowly avoided going out of business early last month when it secured a $US568 million ($826 million) loan, satisfying the city’s aviation authority which had threatened to suspend its licence.

Virgin’s planes flew 64 per cent full on outbound services to Hong Kong in October, compared to 77 per cent full at Qantas and Cathay Pacific, according to Department of Infrastructure data.

Goldman Sachs has estimated the lower passenger numbers for Hong Kong flights will cost Qantas at least $25 million. Qantas cut its capacity to Hong Kong by 7 per cent in September by swapping A330-300s for A330-200s, which have 26 fewer seats, on those services.

Most Viewed in Business

Source: Thanks